China-UAE trade: Enter the dragon

Dubai Chamber of Commerce and Industry says China-UAE trade has recorded an average increase of 35 percent every year for the past decade, surpassing $35bn in 2012. And with Chinese tourists spending $55bn a year and rising, UAE businesses are making steps to attract them
By Courtney Trenwith
Sun 10 Mar 2013 09:53 AM

Rattle off any of the figures related to China in the UAE and probably only one of them is better than all other countries — but it’s the one that counts: growth. China is easily outstripping all other competitors when it comes to the pace at which trade, business ties and tourism are growing in relation to the UAE. And that pace is truly astronomical.

China-UAE trade has soared by an average 35 percent every year for the past decade, surpassing $35bn last year, according to the Dubai Chamber of Commerce and Industry. It now represents 10 percent of total trade excluding oil.

In 2011, Dubai’s non-oil trade with China was valued at AED99.8bn ($27.2bn), making it the emirate’s second largest trading partner behind India. The figures for 2012 have not yet been finalised but it is expected that China will become only the second country in the UAE’s trade history to jump the headline figure of AED100bn.

Just as significantly, about 60 percent of China’s total trade passes through the UAE, from where it is re-exported to Africa and Europe, making the Gulf country one of the Asian powerhouse’s most crucial partners and the UAE one of the greatest beneficiaries of the rise and rise of China, as other countries in Africa and the Middle East also scramble to get on board the Sino-train. Even the UAE’s largest trading partner, India, relies on the Gulf country for a significant portion of its Chinese imports.

“As one of our largest trading partners, China is very significant for the UAE and Dubai,” Dubai Chamber of Commerce and Industry director general Hamad Buamim tells Arabian Business.

“[And] judging by the will to enhance cooperation shown by both sides it is likely that the UAE and China will succeed in building stronger bilateral ties. Trade, tourism, construction and financial services will be the main sectors of mutual benefit.”

There are now 2,411 Chinese companies with Dubai Chamber membership, up 18 percent in only two years. The majority are in building materials, electrical, machinery, garments, gifts and novelty items. A further 1,400 are estimated to be based elsewhere in the UAE. Buamim says there has also been an increase in the number of Chinese firms using the emirate’s onshore financial hub, Dubai International Financial Centre (DIFC), as a platform to access markets in region. Large Chinese companies such as the Industrial and Commercial Bank of China and oil giant Petro China have set up there.

“We envisage this trend continuing,” Buamim says.

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The chamber is actively targeting China as a key market and is exploring the possibility of opening an office there in the next three to five years.

“This office will help bring members closer to the commercial opportunities that exist in China and help enhance ties with this important Asian partner.” Buamim says.

“It will also help Chinese companies expand into the Middle East market, using Dubai as a base.”

The UAE also is vying to become the next offshore trading centre for the Chinese renminbi. Hong Kong was the first, and so far is the only, location granted this increasingly desirable status. The UAE is competing against London and Singapore.

“Dubai is well placed to become an offshore trading centre for the renminbi. It is a natural choice as no other country or city in the Middle East and Africa region has the fundamentals to achieve this,” Buamim says.

“Dubai is a major trade hub, with a free zone financial centre, and an increase in Chinese tourism in recent years.

“Securing this position would be a major boost for Dubai’s economy and would facilitate improvements in trade, tourism, banking and financial services, retail and leisure.”

An increasing number of UAE businesses also are accepting the Chinese renminbi as a form of payment — a trend that is only going to increase.

Dubai and Abu Dhabi have recently hosted the Chinese foreign trade minister and the Hong Kong Monetary Authority to gain a better understanding of the renminbi as a global currency and the benefits of trading with it instead of the US dollar.

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It makes sense: using the Chinese currency with Chinese customers cuts down the speed it takes to finalise transactions, increasing cash flow and decreasing exchange losses; and there are fewer regulatory requirements than using a third-party currency. As the dollar — which the UAE’s dirham is pegged against — continues to slide against the renminbi, the importance of using the Chinese currency will only grow.

Presently only four percent ($1.4bn) of UAE’s trade with China is denominated in yuan and it is generally limited to large retailers and commodity importers. That compares to about nine percent of total global trade using the yuan.

“However, we anticipate that this share will rise to ten percent in the next year or so,” Buamim says.

The UAE was one of several key trading partners that last year signed a currency swap agreement with China in a bid to boost the use of the renminbi. The UAE’s $5.5bn agreement covers less than one quarter of the value of two-way trade between the countries but Buamim says it is “an important first step and is set to expand”.

The countries also are heavily involved in building each other’s infrastructure, with billions of dollars worth of construction contracts being signed in recent years. Meanwhile, Dubai’s DP World has invested in numerous Chinese ports including Hong Kong, Tianjin, Qingdao and Yantai, plus logistics centres in Hong Kong and Yantai.

Dubai also is home to the largest Chinese trading centre outside the mainland — Dragon Mart. Any Dubai resident — particularly the 200,000 Chinese expats — will be familiar with the huge 1.2km long, pink dragon near International City. A thriving hub for Chinese goods, it offers everything from homewares and knick-knacks to building supplies and machinery. Already sprawled across 150,000 sq m, developers Nakheel are stretching it even further, to 175,000 sq m, with construction due to be completed early next year.

Chinese tourism is also rapidly expanding, with the 250,000 Chinese travellers in the UAE last year representing a whopping 30 percent increase on 2011. With Chinese tourists spending $55bn a year — and rising — UAE-based businesses are going out of their way to attract them.

There are now 21 daily flights to China (Beijing, Shanghai, Guangzhou and Hong Kong) from Dubai, including eight operated by Emirates. About one quarter of those flights are via the new A380 aircraft, the largest in the world. Chinese nationals make up about four percent of passengers at Dubai International Airport and immediately they are pumping money into the economy, accounting for 12 percent of sales at Dubai Duty Free outlets.

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“Since the UAE and China eased their bilateral visa policies in September 2009, Dubai has witnessed an influx of Chinese travellers,” Dubai Duty Free executive vice chairman Colm McLoughlin says. “As Chinese passenger traffic has grown over the years we continue to see an established pattern of growth of Chinese travellers at Dubai Duty Free outlets. We’ve seen a substantial growth every year.”

In recognition of this growth, the retailer has hired 573 Chinese employees at the Dubai International Airport outlet — from nearly zero only five years ago.

“Improving services for Chinese customers became one of the key priorities for Dubai Duty Free to maximise the potentials and opportunities brought about by the impact of the Chinese consumers,” McLoughlin says.

“The initiatives are customer friendly and focus on the essentials of understanding the needs and requirements of this important and growing market.

“We are increasing our Chinese translated signage in Terminal 1 and 3. The Chinese Union Pay Card, which is widely used by the Chinese worldwide, has been enabled in most shops. We also started accepting the Chinese yuan currency [in] November 2011.”

Many high-end hotels also are cashing in on the expanding number of Chinese moving up into the middle and higher classes and keen to splurge with their new-found wealth.

Walk into many of Dubai’s high-end retail stores or hotels — including Bloomingdale’s, Rivoli Group and Bottega Venetta — and you will easily find a Mandarin or Cantonese speaker, as well as translated information signs and brochures. Many also accept the renminbi as a form of payment.

During the recent Chinese New Year, hotels offered special packages and hosted Chinese-inspired celebrations, even changing their restaurant menus to reflect the Year of the Snake theme.

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The Burj Al Arab saw a three-fold increase in the number of Chinese guests during the new year period. On average, Chinese nationals represent 26 percent of the sail-shaped hotel’s annual guest list but that climbed to 72 percent at the beginning of February, when the hotel beamed a specially commissioned Year of the Snake design onto the sail, hosted a VIP reception on the beach, created special menus at its pan-Asian restaurant and staged a traditional lion dance.

Standard Chartered's head of SME (small and medium enterprises) banking for the Middle East, Doug Stoneham, says the UAE is in a prime position to play a crucial role in China’s inevitable rise. He says the government is doing what it can to help facilitate and encourage investment and trade with the Asian nation.

“This is an evolution; it’s not something that’s going to suddenly be completed overnight,” he says.

“[The UAE government] is doing what’s appropriate. Clearly, the UAE as a major oil and gas exporter is important to the Chinese. In that sense, the UAE authorities, I think, are leveraging that as far as they can to maximise the potential for reciprocation.”

So while China’s trade with the UAE may be only one-third of the value of India’s ($19bn annually) that may not last forever as China rapidly closes the gap.

“The pace of growth with China is far more stark compared to India, which has already been a long-term partner,” Stoneham says.

“We’re seeing clearly... the emergence of the power of global economies shifting from West to the East and China and India will play very large roles.

“I see [China] closing the gap in the next few years, [although] it’s difficult to say whether they’re going to overtake [India]. There’s a significant amount of money invested in infrastructure in China that I think will give it an edge over India [as the UAE’s largest trading partner].”

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